ExxonMobil: Important Aspects in Ukraine

In connection with ExxonMobil's forthcoming E&P activities in Ukraine in the deepwater of the Black Sea, Jim Johnston, Head of Representation, ExxonMobil E&P Ukraine, noted some of the concerns that had been discussed at the Ukrainian Energy Forum in Kiev.

"We've heard about energy security/independence for Ukraine, increasing the country's oil and gas production and replacing declining reserves - will it be done and how? Environmental protection is a very important topic, and employment - in these large new projects bringing jobs into the country and improving people's lives, and I think that is one one of the most important aspects of these projects," he stated.

He reported that in August 2012 the Ukrainian Government had awarded the offshore Skifska block to the group of investors led by ExxonMobil. The winning bid combined the extensive deepwater experience, technological expertise, financial strength and environmental protection capabilities of ExxonMobil, Shell and OMV Petrom with the local expertise of national company Nadra Ukrayny.

Mr. Johnston described what he termed as "enablers" - the criteria required for large scale investments in complex projects, such as the offshore project that ExxonMobil was leading in Ukraine: "Those include a transparent and stable investment climate, efficient regulations, and open access to pipelines for both domestic and export. Those are important topics."

He posed the question of what contribution was expected from the deepwater areas of Ukraine, showing a chart from ExxonMobil's Energy Outlook 2040, a publication updated annually that was used for large-scale, long-term investment decisions. "We'll be spending billions of dollars on these projects," he said, adding that deepwater investments were set to grow significantly and reach 12% of the total by 2040.

"That's the reason we're focusing, not only in Ukraine, but all over the world, on large-scale projects in the deepwater offshore," he explained, showing ExxonMobil's inventory of such projects.

"These projects require some innovative design approaches and innovative technologies, and great attention to detail in execution. The technologies developed in these different areas are transferrable."

One example of this, he explained, was extended reach drilling that was started in offshore California and was moved to eastern Canada, where it was further refined, and now it is being used in Sakhalin offshore, where the company was drilling some world record extended reach wells. "These wells are hitting targets just several meters wide and they might be over 12 kilometers long," he said.

"It's that type of technology that's allowing us to access more reservoir and allow for higher flow rates and therefore we're using less capital - we have to drill fewer wells," explained Mr. Johnston, who named exciting exploration areas like the the Gulf of Mexico or West and East Africa, where there had been some exciting gas discoveries.

He told the delegates in attendance that ExxonMobil was one of the more active operators in the Black Sea: "We have completed recently a large offshore drilling program in offshore Turkey - unfortunately it was not successful. We're working together with Rosneft in the Russian sector, and we've just recently drilled - a successful discovery - in Romania, and we're hopeful we'll appraise that soon."

In Ukraine's section of the Black Sea, he recalled that ExxonMobil was pursuing a production sharing agreement, that Shell and TPAO had recently announced a deal to explore offshore Turkey further, and; Total had been awarded an area offshore Bulgaria.

He commented, "With that much activity, the potential for multiple industry wells over the next five years is quite high, but in order to be prepared for success, we must have the enablers in place, which are to the benefit of the host nation, Ukraine, and to international investors. If properly implemented, they create value and benefit for both sides."

If the enablers were in place, according to Mr. Johnston the necessary confidence would be there to make significant investments like drilling, which he said was probably the single largest capital expense in a development program.

Regarding how ExxonMobil designs its wells, he said it started with a geological model, determining where reservoirs were, what the depths, temperatures and pressures were, as well as the density of rock and, most importantly, potential hazards. In a diagram which considered such factors, he showed the chances of success of a well.

He showed the capital expenditures, which he said were substantial, explaining, "Deepwater drilling is technically challenging, requires global experience and the application of rigorous environmental standards. Daily rig rates offshore can exceed $1 million/day, and there's only a one in five chance that these wells will be successful. When we move to the development phase, the drilling costs can exceed $150 million/well and typical total development costs can be in the order of billions of dollars."

In ExxonMobil's efforts to develop offshore technology, Johnston said operational safety was highly emphasized. "We're leading a well containment project in the Gulf of Mexico, which is a project designed to address well control issues on short notice. If there are problems with such wells, within 24 hours we can have equipment out there to address the problem."

The "Subsea Well Response Project" was the international version of that project, he said, created by the global industry. And to address unique seawater chemistry, he said that ExxonMobil had a designed process in order to tackle the corrosion process - another technology that enabled complex offshore zones to be brought into production.

"Despite all the challenges of deepwater drilling there are technologies that are in place to meet them. We can do that in a safe way with minimal impact to the environment. ExxonMobil's prepared to do that," concluded Jim Johnston.